The good old bobby in his serge blue jacket and pointy hat summed us up nicely - as, by and large, a pretty safe and orderly nation, where the rule of law prevailed and was properly enforced. So what went wrong? The resignations in quick succession of two of the country's most senior officers, Sir Paul Stephenson, the Scotland Yard commissioner, and his assistant John Yates, have triggered one of those periodic fits of national breast-beating about the state of British policing.

Speaking in South Africa, David Cameron dramatically increased the stakes by saying that there were questions of "police corruption" that needed to be answered and Theresa May, the Home Secretary, announced an inquiry into an allegedly "nepotistic" relationship with the media. The headline in one paper yesterday screamed "Meltdown at the Met"; and Paul McKeever, the chairman of the Police Federation, was sufficiently concerned about the fall-out that he felt obliged to defend his members from any taint of impropriety.

"I must object, on behalf of all police officers across England and Wales, to the grossly offensive and incorrect assumption that the police service suffers from widescale corruption," he said. "The British police service remains the most open, accountable and professional police force in the world and the men and women who work within it are of the utmost integrity and have every reason to be proud."

But is that really true any more?

The Foreign Secretary warned that any mention of an EU military headquarters would trigger a veto after a row marking Britain's most serious rift with Lady Ashton, a Labour peer. "I have made very clear that the United Kingdom will not agree to a permanent operational HQ. We will not agree to it now and we will not agree to it in the future. That is a red line," he said

Secret proposals tabled by Lady Ashton, the EU foreign minister and seen by The Daily Telegraph called for a "permanent civilian-military planning and conduct capability" or "OHQ". "The Treaty of Lisbon offers an enhanced platform for the EU to act," said the document. "This opportunity must be exploited." Mr Hague is concerned that Lady Ashton's attempt to give the EU new security powers will undermine Nato and lead to further Brussels demands for extra cash at a time of national defence cuts.

"We are opposed to this because we think it duplicates Nato structures and permanently disassociates EU planning from Nato planning," he said. "We won't be agreeing to a permanent operational headquarters and therefore we are not able to welcome today's report by Cathy Ashton on this matter." Alain Juppe, the French foreign minister, praised Lady Ashton's "excellent" proposals for an EU HQ but admitted that British opposition had blocked the move.

The Sunday Times reported that EU Foreign Minister Baroness Ashton will challenge UK Government policy today by outlining a proposal for a permanent EU military headquarters that would "command and control" future European civilian and military campaigns.

EU diplomats say one option being considered in order to soften Britain's opposition is to house the headquarters in the UK and claimed that it could initially be staffed by 250 officers and crisis management experts. Open Europe Research Director Stephen Booth was quoted on page two saying, "Creating a new EU headquarters would simply be a distracting attempt to paper over the deep-seated divisions in EU foreign policy, which show no signs of going away. It would potentially threaten Britain's primary military alliance, which remains with the United States via Nato."

Where is the European Central Bank, ask bankers and investors. It's a fair question. The sight of Italian 10-year bond yields at 6% would, you might think, have been a cue for the central bank, the first line of defence against loss of investor confidence, to wade into the market and start buying Italian debt. Italy, saddled with high debts and low growth, cannot prosper if it is obliged permanently to pay such prices to borrow. A bond-buying spree by the ECB would have been taken by investors as a declaration that eurozone institutions will act to stop the rot. In the US, that's how the Federal Reserve would have reacted.

Instead, the ECB, hamstrung by its mandate and rows with politicians over how the design of a permanent solution to the crisis, did nothing. And, presumably, it will continue to do nothing, at least until the summit of eurozone leaders on Thursday. That meeting now looms as the moment when the eurozone, at the very least, has to decide how it wants to tackle Greece's debts; private holders of Greek debt must be told what hit to expect and when.

But the summit needs to deliver a commitment to a pan-eurozone bond in which members guarantee each other's debts, or at least a portion of them. And, if not a rescue fund, then something that will do the same job. Without firm action, investors will conclude that eurozone politicians - specifically the German chancellor Angela Merkel - simply lack the will or electoral authority to fight to save the single currency. It will be Rescue Thursday - or Black Friday.

Berlusconi's Italy is debt-ridden, shouldering a burden worth 1.85 trillion euros, more than twice as much as Greece, Ireland and Portugal combined. In the next 12 months alone, 300 billion euros of that debt will have to be refinanced - more than the 250 billion euros in the euro-zone bailout fund. Last week, confidence in the country seemed to disappear from one day to the next.

Rating agencies, led by Moody's, threatened to downgrade Italy's credit rating. Private investors panicked and sold their Italian investments, US hedge funds bet gigantic sums on the further decline of Italian government securities, and the Milan Stock Index declined for an entire week. It seemed as if Italy, the world's eighth-largest economy and a founding member of the European Union, had become the next Greece.

The Finance Ministry in Rome easily managed to sell additional billions in debt securities last week, but it had to pay almost 25 percent higher interest than before. Had a new vicious cycle of debt been set in motion, this time on the western shore of the Adriatic?

Fund firms contacted by Reuters said rating agency research tended to be backward-looking and superficial, and often encouraged the kind of speculation that has recently dragged down Italy, one of the world's largest government bond issuers. "We have canceled our subscriptions to two of them and they haven't left us alone since. It has been very irritating," the head of sovereign debt investment at one large European bond investor told Reuters on condition of anonymity.

"It would be naive to blame the agencies for everything that went wrong during the financial crisis but anyone who relies on a third party to form their investment opinions is headed for trouble... clients pay us to make those decisions, it would be completely wrong of us to abdicate that responsibility." Investors say they have steadily reduced reliance on external research providers ever since rating agencies slapped high ratings on complex structured financial investment products such as collateralized debt obligations (CDOs) which later turned out to be far riskier than initially assessed.

A broad push for development of proprietary research teams shows credit ratings agencies have never fully regained the trust of some of their most important buy-side clients, some of whom are still counting the costs of belated warnings of a change in the risk profile of debt issuers. Relations have cooled even further in 2011 as the increasing probability of a European sovereign debt default threatens to kick a feeble economic recovery sharply into reverse.

European Commission President Jose Manuel Barroso has said Europe was looking at ways to curb the power of the mainly US based agencies and was weighing possibilities for legal redress after Moody's downgrade of Portugal's debt.

Brown on Thursday signed into law SB 48, which is designed to take effect in January of next year, although the San Francisco Gate notes that the state's fiscal crisis is so deep it will be unable to purchase the new texts until 2015 at the earliest. Pushed as an antidote to gay bullying in schools, the measure mandates textbooks to highlight homosexual persons and their activities in American history.

It simultaneously reinforces a gag on religious doctrine, noting that "any sectarian or denominational doctrine or propaganda contrary to law" is forbidden. The text of the law ends with a warning shot at private schools in California, stating: "It is the intent of the Legislature that alternative and charter schools take notice of the provisions of this act in light of Section 235 of the Education Code, which prohibits discrimination... in any aspect of the operation of alternative and charter schools."

The bill includes no age requirement, meaning the changes could affect even the lowest elementary school grades, notes Baptist Press. The Assembly had approved the measure by a 49-25 vote on July 6, following a heated debate. Republican Assemblyman Tim Donnelly expressed outrage over the bill on the chamber floor. "I think it's one thing to say that we should be tolerant. It is something else altogether to say that my children are going to be taught that this lifestyle is good," said Donnelly, according to the Associated Press. "As a Christian, I am deeply offended."

Meanwhile, family advocates expressed alarm at the new law's obvious implications for the national textbook market. "The reality is that the major textbook manufacturers do not create different textbooks for each state," said Pacific Justice Institute (PJI) president Brad Dacus in a statement July 6. "Instead, they seek to comply with mandates in the largest states, especially California and Texas. As a result, many smaller states are pressured into approving California-focused instructional materials, which must now cater to the gay history mandate."

Randy Thomasson, president of SaveCalifornia.com, a conservative family group, said under the new law parents will have no choice but to take their children out of public school and homeschool them to avoid what he said was "immoral indoctrination." The new law applies only to public schools, not private schools or families who homeschool.

"Jerry Brown has trampled the parental rights of the overwhelming majority of California fathers and mothers who don't want their children to be sexually brainwashed at school," Thomasson said. "This new law will prohibit textbooks and teachers from telling children the facts that homosexuality is neither healthy nor biological."

Spot gold rose as high as $1,600.40 an ounce and was up 0.4 percent at $1,598.76 an ounce at 0845 GMT (09:45 am British time). Gold rose more than 3 percent for a second straight week to Friday, a feat it has not achieved since February 2009. Data from US futures regulator the Commodity Futures Trading Commission showed on Friday that managed money sharply raised bullish bets in US gold futures and options in the week ended July 12 as bullion prices rallied.

"CFTC data shows a surge into gold, so despite the higher levels the professionals have returned to gold with a vengeance," said Saxo Bank analyst Ole Hansen."The stress test result was met with a lukewarm response with focus again switching back to Europe. When that happens gold is often allowed to perform despite the dollar strengthening at the same time."

Sovereign default fears are growing in both Europe and the United States. The United States is struggling with deficit reduction talks ahead of the White House's July 22 deadline on a deal to raise the $14.3 trillion debt ceiling. Stock markets fell in Europe as bank stocks came under pressure after a capital stress test failed to dispel fears about the regional debt crisis, while Bund futures opened higher as uncertainty ahead of a euro zone meeting this week underpinned appetite for safe-haven assets.

The more investors fear that heavily indebted euro-zone governments will be unable to repay their debts, the more the yields on their bonds rise, dragging down their value in banks' balance sheets, erasing their capital, and increasing the need for yet more bank bailouts by stronger euro-zone governments.

Europe's banks were in the spotlight on Friday when the European Banking Authority released its bank stress-test results, showing eight banks failed a test of their ability to withstand a prolonged recession. Euro zone leaders will meet in Brussels next Thursday to discuss a second bailout package for Greece and the financial stability of the euro area, European Council President Herman Van Rompuy said on Friday.

"Next week will be another headline driven week," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "On one side of the Atlantic there will be news regarding the status of Greece's second bailout and on the other side is the debt ceiling and the potential of a ratings downgrade." The uncertainty benefited the safe-haven Swiss franc this week. The dollar had its worst weekly performance since late May against the Swiss franc losing 2.7 percent.

"We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty," Moody's analyst Steven Hess wrote in the report. The agency last week warned it would cut the United States' AAA credit rating if the government misses debt payments, increasing pressure on Republicans and the White House to come up with a budget agreement.

Moody's said it had always considered the risk of a US debt default very low because Congress has regularly raised the debt ceiling during many decades, usually without controversy. However, the current wide divisions between the House of Representatives and the Obama administration over the debt limit creates a high level of uncertainty and causes us to raise our assessment of event risk," Hess said.

Stepping further into the heated political debate about US debt problems, Moody's suggested the government could look at other ways to limit debt. It also cited the example of the Maastricht criteria in Europe, which determines that the ratio of government debt to GDP should not exceed 60 percent. It noted, however, that such a rule is often breached by the governments. In the United States, Moody's said the debt limit had not effectively curbed the rise in government debt because lawmakers regularly raise it and because that limit is not related to the level of expenditures approved by Congress.

Instead, Boehner and House Majority Leader Eric Cantor (Republican for Virginia) plan to move the Cut, Cap and Balance Act on the floor next week, which would require passage of a balanced budget amendment to the Constitution before the debt limit is raised. A House GOP leadership aide said at noontime Saturday that Boehner and Cantor did not send Obama a revised proposal to raise the debt-limit, as the president requested.

A White House official said talks continue despite the missed deadline. "The president, vice president and staff have been in frequent communication with leaders and staff in both chambers and parties, discussing various options," said the official. At a meeting late Thursday afternoon, Obama gave congressional leaders 24 to 36 hours to meet with their colleagues to figure out a plan that could pass both chambers. "It's decision time," Obama said.

Ignoring Obama's directive, Republican leaders are coalescing around the Cut, Cap and Balance bill that is expected to pass the House but has virtually no chance in the Democrat-controlled Senate. The legislation would cut $111 billion in fiscal year 2012, cap spending at 18 percent of gross domestic product by 2021 and would authorize a $2.4 trillion increase in the debt limit after Congress passes a balanced budget amendment. House Republicans discussed it at a special conference meeting Friday morning and plan to put it on the floor next week.

"Nothing would destroy more quickly and in a more lasting fashion incentives for a solid budget policy than joint guarantees for sovereign debt," he said. "But this is exactly what some politicians and economists are proposing in the form of eurobonds as a solution to Greece's problems."

Eamon Gilmore, Ireland's deputy prime minister, said issuing eurobonds was "one of a series of options that have to be looked at" and "an option I favour". Mr Gilmore said the stronger European countries had to see the crisis as a "eurozone problem rather than an issue for individual countries".

On Friday, Deutsche Bank analysts warned that markets around the world could crash by more than a third if Europe fails to resolve its debt crisis. Over the weekend Poul Thomsen, the International Monetary Fund's mission chief to Athens, said that Greece's finances were on "a knife edge." Last week the IMF said Greece needed an extra 100 billion euros (88 billion pounds) of aid on top of the 110 billion euros bail-out package agreed last May. Greece is already being crushed under its 350 billion euros debt pile.

Their warnings about the precarious finances of the world's top economies have also roiled investors more accustomed to seeing emerging market countries take the brunt of criticism. Tension hit new highs on both sides of the Atlantic last week as Moody's and Standard & Poor's threatened to downgrade the United States' prized "triple-A" rating.

A few days earlier, Moody's slashed ratings in Ireland and Portugal to "junk" status, triggering an outcry from European officials.

"These opinions, they continue to give them in such a way that it worsens the crisis," Ewald Nowotny, a member of the European Central governing council, said on Tuesday, referring to the agencies. He said markets could live without them. Now that the agencies are focusing their fire on the rich world, US and European officials - long proponents of seeing indebted nations "take their medicine" - are crying foul.

Forecasters warned the heatwave would persist through much of the coming week and cautioned residents in more than three dozen states to take extra precautions. The National Weather Service posted excessive heat warnings for much of the country's midsection, including Illinois, Wisconsin, Minnesota, Iowa, Missouri, Kansas, Nebraska, Oklahoma, as well as South and North Dakota, where forecasters predicted heat indexes could hit 115 degrees.

"This will likely be the most significant heat wave the region has experienced in at least the last five years," the weather service said.

Cities especially hard hit by the heat included Rapid City, South Dakota, Springfield, Illinois, and Minneapolis, Minnesota, where AccuWeather.com meteorologists were predicting long-standing high-temperature records would fall this week. Kristina Pydynowski, a senior meteorologist at AccuWeather, predicted the heatwave will affect more than 40 states. All the states will see temperatures of 90 degrees Fahrenheit or higher, she said, and "a large number of them will bake above 100 degrees for days on end."

The scorching weather is the latest in a series of meteorological problems to beset the Midwest in recent months.

The list includes the devastating tornado that ripped through Joplin, Missouri in late May, killing nearly 160 people and destroying more than 8,000 homes and other structures, as well as the ongoing flooding along the Missouri River, which has triggered weeks of evacuations and other emergency measures from Montana through Missouri.

Both Moody's and Standard & Poor's are threatening to downgrade the country's debt amid fears of a national insolvency. But for once it is not a debt-stricken euro-zone member that has come into the crosshairs of the powerful rating agencies. This time it is the United States, the world's largest economy, that is at risk of going bust. The US needs to raise its debt ceiling, currently set at $14.3 trillion (10.1 trillion euros), by August 2, otherwise the country will run out of money. But negotiations between President Barack Obama and top Republicans and Democrats have so far failed to make progress.

The mass-circulation Bild writes:

"Playing poker is part of politics, as is theatrical posturing. That's fair enough. But what America is currently exhibiting is the worst kind of absurd theatrics. And the whole world is being held hostage."

"Irrespective of what the correct fiscal and economic policy should be for the most powerful country on earth, it's simply not possible to stop taking on new debt overnight. Most importantly, the Republicans have turned a dispute over a technicality into a religious war, which no longer has any relation to a reasonable dispute between the elected government and the opposition."

"If it continues like this, the US will be bankrupt within a few days. It would cause a global shockwave like the one which followed the Lehman bankruptcy in 2008, which triggered the worst economic crisis since the war. Except it would be much worse than the Lehman bankruptcy. The political climate in the US has been poisoned to a degree that is hard for us (Germans) to imagine. But we should all fear the consequences."

Even in the "milder" scenario where the crisis does not spill over into the wider economy, we would see markets fall by 12 per cent. The warning came as EU president Herman Van Rompuy said eurozone nations will hold a special summit in Brussels on Thursday over a second bail-out for Greece.

The announcement came after the International Monetary Fund urged officials to act with a "greater sense of urgency". The flight from Italian and Spanish bonds in recent days has stoked fears that countries "too big to bail" could become embroiled. Division in the eurozone over to how to tackle its debt woes were thrown into sharp relief by statements from Germany's finance ministers on whether the shared currency is under threat.

There is "no crisis of the euro", according to Germany's deputy finance minister, Joerg Asmussen, calling it "a crisis of public debt and competitiveness". Meanwhile Wolfgang Schaeuble, his finance minister, told a newspaper: "The crisis in confidence... prompted by Greece is now endangering the euro as a whole."